30 Million population, urbanisation and new properties – Long term view

Few days ago, I read in Malay Mail online that Malaysia has hit the 30th Million population. This information was not shared by a lot of people unlike the usual political news these days. Actually, population growth is a very important factor driving the growth of any country. This is especially when it comes to property market. Imagine if there are no population growth, there would be no need for more new properties to be built. With population growth, everyone reaching a certain stage may consider buying a property. First time home buyers, up-graders and even migrants from smaller towns to work in cities. They just could not afford to rent forever because if you buy, you hedge against further rises but if you rent, there is nothing to hold the rental from going up drastically.

This population growth in Malaysia would continue to drive urbanisation. If you can see the chart from the Department of Statistics Malaysia, you can see which would be the states where urbanisation would happen fastest. This is also where all the job opportunities are. For example, if you are a fresh graduate today, you would have only a few choices if you intend to climb the corporate ladder. This is the same as property investment. In fact when my brother graduated with an Engineering Degree, his most natural choice would be Penang. I wrote an article about this before: New Engineer, New Penang Property.

Even today, when we look at Klang Valley, the planning is no longer based on specific area but it is planned based on the Greater KL perspective. This is because when FDI comes into Malaysia, the places they invest would need to have infrastructure as well as human capital. Typically, these are the places we see today where urbanisation is happening rapidly. Thus, the 30th Million Malaysian is to me a very significant piece of news because it signifies the potential of property as a long term investment. Not everyone needs a car if the MRT is functioning and the transportation planning becomes world class. However, out of the 30 Million population that we have, we can already see that a minimum of 10 million houses would be needed just for the current population if we use a ratio of 1:3.

Total houses being built per year in Malaysia? Take a look at the data by NAPIC. The reality is even until today when we see the hundreds of developers both big and small, total units being completed is not yet as fast as what the market really needs. Are they building the right type of properties? The answer may be NO. Developers are all looking for profit, thus, what they build would be skewed towards what’s most in demand today. Hopefully, all the lower medium houses being built by federal and state governments can be fastened so that we can see some good results come 2016.